With US stocks outperforming non-US stocks in recent years, some investors have again turned their attention towards the role that global diversification plays in their portfolios.

While non-US equities have recently delivered disappointing results, it is important to remember that investing globally provides valuable diversification benefits.

Have a look at the chart below. We see that investors who had exposure to other areas of the global landscape were rewarded with positive returns. Cumulative performance from January 2000 – December 2019 reflects the benefits of having a globally diversified portfolio, especially a portfolio that targets areas of the market with higher expected returns. Longer time frames increase the likelihood of having a positive investment experience.

Total Cumulative Return (%)22000-20092010-20192000-2019
S&P 500 Index-9.10256.66224.33
MSCI World ex USA Index (net div.)17.4767.8997.22
MSCI World ex USA Value Index (net div.)48.7148.79121.27
MSCI World ex USA Small Cap Index (net div.)94.33116.76321.24
MSCI Emerging Markets Index (net div.)154.2843.50264.91
MSCI Emerging Markets Value Index (net div.)212.7222.83284.13

Diversification neither assures a profit nor guarantees against loss in a declining market.

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